The Case for a Bigger Emergency Fund

Do you have an emergency fund?

Well, if you read many personal finance books or blogs, you’ll consistently get recommendations to have one. Typically, I’ve seen people recommend 3 to 6 months of expenses as a part of an emergency fund. Sometimes you’ll see higher, such as 6 to 9 months, but over the years I’ve seen lesser amounts recommended.

I don’t think that’s quite enough.

After giving this some thought of late, I think it’s a very sound approach to keep at least 9 to 12 months on hand for emergencies.

This exceeds what I tend to read elsewhere, but the more I think about it the more it just makes sense.

The big reason I see is that traditional advice for this area of personal finance seems to be stuck in a different time period, under different economic conditions.

In the recent past – prior to the last few years, anyway – the employment situation here in the U.S. just seemed a good deal better. Now, while the stated unemployment may say one thing, I think there are plenty of people out there who have given up looking for work or are underemployed in some capacity.  It may not be apparent at all in certain metro areas, but is more than clear in others. In other words, if someone suffers a job loss, it just might take a while to find another comparable position.  3 to 6 months may not get it done. This happens to people all the time.

In addition to job market considerations, what about medical emergencies, accidents, and other health-related crises? Best to plan for just in case something happens. Sure, we have insurance, but that might not cover every expense in the case of emergency.  Things do happen to people. While the odds of any one thing happening might be small, when you consider all the risks out there, it puts into perspective the chances of something happening.

What about home and car situations? Maybe your hot water heater will go out, or a sump pump will fail. Maybe your car will break down and require significant repairs. Again, things happen.  Sometimes, multiple things can happen at once.

One great thing about having a substantial emergency fund is that is gives you more peace of mind and confidence  in your ability to deal with situations such as the ones I mentioned above. There’s something to be said about the “sleep well at night” factor when considering one’s ability to handle sudden financial needs.

Last month, I posted about an interesting survey of which I saw results that indicated nearly 50% of Americans would have serious trouble coming up with an unexpected $2,000 expense.  Now, how many months of expenses do you really think that is for most people? No way that it’s anywhere close to the 3 to 6 months mark. Realistically, tons of people are having trouble coming up with money that equates to even 1 month’s worth of expenses.

Saving money can be a challenge for many people, darned near impossible for others it would seem. We all have different lives, and some have some very real, genuine difficulties. So, I acknowledge that finding the money to save 9 to 12 month’s worth of expenses for an emergency fund may not seem easy.

That being said, I think that if somebody (or a family) can build an emergency fund that can push 1 year, it can really alleviate some concerns, stress, and some very real financial risks. Avoiding those things is good, right?

What do you think?

Do you think 3 to 6 months is sufficient for most people, or do you think something closer to the 9 to 12 month range I advocate makes sense?

Do you have an emergency fund for yourself (or family)? If so, how many months of expenses can you cover?


  1. says

    I think a year’s worth of living expenses is prudent, and longer is better. I personally know of people that went over a year before resuming satisfactory employment.

    • Squirrelers says

      101 Centavos – ding, ding, ding…we have a winner! Exactly right, it takes many people a LONG time to find satisfactory employment. 3 to 6 months can be a very risky proposition, as that’s the realistic low-end timeframe to find a new position.

  2. says

    My SO and I each has a slush fund that would cover more than a year’s worth of expenses. I think with the economy the way that it is if you loose your job odds are you’ll go without for more than 3-6 months. Also months of living expenses is a silly way to plan for medical emergencies, car breakdowns etc. which have no relation to your monthly budget. Those will need to be assessed based on your current health insurance deductible and if it’s through an employer (you’ll have to pay yourself if you loose your job), you car’s reliability, etc.

    Basically I’m with you. 3-6 months isn’t going to cut it if a true emergency strikes.

    • Squirrelers says

      No Debt MBA – yes, 3 to 6 months won’t cut it with a true emergency. That’s generally not a lot of money, in the big picture.

  3. says

    I totally agree. Today’s economy is not situation normal. Peace of mind is very important, but the realities of how long it takes to replace income from a job really make a year’s expenses a smart amount to save. Those who don’t have even $2,000 saved need to wake up and smell the coffee. The 3-6 months amount is a good place to start, but it’s not a smart place to stop.

    • Squirrelers says

      Maggie – good way to put, today’s economy is not situation normal. Or, maybe it’s the new normal? Saving up to a year provides more of a safety net.

  4. says

    Always have a good amount of cash liquid. If nothing bad happens, all you lost was potential for higher interest. If something does happen, you are covered.

  5. says

    I don’t why these emergency fund posts are now haunting me in my Reader. Oh wait, I do. Someone is trying to tell me something. Darn you personal financial bloggers!

    • Squirrelers says

      cashflowmantra – I read your post on your blog, about the air conditioning situation….yep, another reason why an emergency fund is important! Stuff happens.

  6. says

    If your family has two incomes, I think 3-6 months is plenty. The more stream of income that you have the less the amount you really need. Hopefully, all your income streams won’t dry up at once. If I’m the sole breadwinner, I think I would feel more comfortable with 9 months. Our efund target is 3 months, but we have quite a bit over right now because we are looking for a rental property.

    • Squirrelers says

      retirebyforty – I respectfully disagree on 3 to 6 months being plenty, especially in this economy. It’s a great start, and probably better than the vast majority of people, but in my view it’s not enough.

  7. says

    I think 6 months is a good amount. Everyone needs to look at their own situation and comfort level.

    For me 3 months wouldn’t be enough at all. I would feel nervous. But 12 months would make me feel like I could be doing more with my money. too much sitting around “doing nothing”.

    • Squirrelers says

      Ashley – true, everybody does need to look at their own situation and comfort level. I can see the point on having a lot sitting around and not earning much if you kept 12 months, but in this day and age it’s more important to have a sufficient emergency fund.

  8. says

    During the school year we keep 1 months expenses in savings. During the summer 4-5 months. We have a year’s expenses give or take in taxable stock market accounts. Then another couple of years in taxable accounts that are more difficult to get to. Then Roths have a couple years that could be tapped into in a true emergency. Also theoretically there’s the home equity.

    We can’t be laid off without a year’s notice. Our take-home pay is almost 2x the month’s fixed expenses. So by keeping expenses low, we could direct some of our extra funds away from mortgage prepayment or retirement savings if we had a bit advance notice on the need for money. That enables us to keep the amount in savings down during the school year, as does the required notice on layoff.

    • Squirrelers says

      Nicole – can’t be laid off work without a year’s notice? Seriously? Wow, that’s great. Most people do not in any way have that luxury. Considering that, I can see how you might handle it differently than many other folks who truly need significant emergency funds.

      • says

        If all goes well, in a year I will have lifetime job security, barring very unusual circumstances. I don’t know if we’ll be staying here forever anyway, but it is a nice perk. Without it, of course, our salaries would have to be higher to compensate.

  9. manish2010 says

    We can start with 3-6 months savings but it is not our goal for sure,as you have explained that we can’t predict what is their in the future to be faced,we don,t know weather we gonna admit in a hospital for some major treatments or we need a new pair of shoes.May be risks are big or small and may be the compensated amount affiliated to that risk is variable,but we all know that our lives are filled with risk,so we can’t ignore it at all.Therefore according to me 9-12 month is a good amount for emergencies.

  10. says

    I know a lot of people who took over a year to get another job and often with a move attached too (which can be expensive).

    Now that I’m approaching 40, it’s easy to say that a big emergency fund is good, but I found it much harder to save in my 20’s when I had so many other competing expenses. (paying off student loans, needing a car, saving for a house, furnishing your first place). Yeah, I did it on the cheap and had roommates and generally didn’t do dumb things, but it still took me about a decade before I was able to save any kind of significant emergency fund.

    I definitely think the older you are, the bigger of a buffer you should have.

  11. says

    I don’t know what’s best, but we only keep about 6-9 months of cash on hand since we can live off of either one of our salaries if we had to. That means we should only have to touch any of emergency money if a big emergency pops up or if we both lose our jobs (his day job, my day job, and my blogging income) all at once…we can technically cut expenses enough to live off any one of those 3…

  12. says

    Six months is probably a good way to start but people should target for one year especially with so many uncertainties in the economy right now. During the economic downturn, most people who lost their jobs took at least a year to get employment. Unemployment benefits may not be enough.

  13. says

    What is right or wrong all depends on the fact that how much of your income do you save every month. On a personal level I have about 12 months worth of emergency fund which means that my 12 times my monthly take home salary is now in the bank as liquid cash.

    Seriously it gives you so much of comfort and a peaceful sleep at night.

  14. says

    You’re absolutely right about our situation being way different than before. I have the standard 3 to 6 month buffer, but really should adjust it for these crazy times. Also, since we are all getting older, health issues, sad to say, are going to be a little more serious (expensive) than the ones when we had when we were twenty.

  15. says

    I’m often giving personal finance advice to freelancers and self-employed people, and I always tell them to save 9-12 months of expenses since their income is so sporadic.

    However, for people with stable jobs in stable companies, I don’t think medical expenses are a sufficient reason for such a big e-fund. Many hospitals will let you make interest-free payments on your emergency medical bills. I know someone who paid $50 a month during college until her $500 emergency room bill was paid off. (It was college, and $500 was a lot of money).

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